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Stock Returns and Risk: Evidence from Quantile

Author(s): Thomas C. Chiang | Jiandong Li

Journal: Journal of Risk and Financial Management
ISSN 1911-8066

Volume: 5;
Issue: 1;
Start page: 20;
Date: 2012;
Original page

Keywords: Risk-return tradeoff | Volatility | Intraday skewness | Quantile Regression | High-frequency data

This paper employs weighted least squares to examine the risk-return relation by applying high-frequency data from four major stock indexes in the US market and finds some evidence in favor of a positive relation between the mean of the excess returns and expected risk. However, by using quantile regressions, we find that the risk-return relation moves from negative to positive as the returns’ quantile increases. A positive risk-return relation is valid only in the upper quantiles. The evidence also suggests that intraday skewness plays a dominant role in explaining the variations of excess returns.
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